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Compensation Plans: Director-Specific Limits
A recent decision by the Delaware Court of Chancery, In re Investors Bancorp Shareholder Litigation, C.A. No. 12327-VCS, serves as a reminder that boards of directors of Delaware corporations should consider amending their companies' director compensation plans to include specific limits on the amount of compensation (both cash and equity) that a director may be awarded in a given year, and obtaining stockholder approval of such compensation plans. As the teachings of the Court of Chancery's decision in Investors Bancorp confirm, doing so can afford a decision by directors to grant themselves compensation under such plans judicial review under the deferential business judgment rule, rather than under Delaware's most stringent standard of review in fiduciary duty actions, entire fairness.
Background
On March 24, 2015, the board of directors (the board) of Investors Bancorp Inc. adopted an equity incentive plan (the plan) governing the company's director compensation. Under the plan, 30,881,296 shares of the company's common stock were reserved for restricted stock awards, restricted stock units, incentive stock options, and nonqualified stock options for the company's officers, employees, nonemployee directors and service providers. The plan imposed limits on the number of shares the company could issue as stock options (a maximum of 17,646,455) or as restricted stock awards, restricted stock units, or performance shares (a maximum of 13,234,841), and the number of shares the company could award to employees and directors.
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